How the Government Blew Its Chance to Rein in Amazon

To anyone who has spent any time thinking about Amazon, the only genuinely surprising thing about the company’s dispute with the book publisher Hachette is that more people didn’t see it coming. Although Amazon presents itself as a technology company, it’s basically a retailer like Walmart, which offers low prices by ruthlessly cutting costs at the alleged expense of employees and suppliers. Amazon has the upper hand in its negotiations with publishers because, as the biggest bookseller in the U.S., it’s far more important to them than they are to it. But the U.S. government made the situation worse by essentially blessing Amazon’s ability to push publishers around.

In 2009, when Amazon accounted for as much as 90 percent of the U.S. e-book market, major publishing houses came up with a plan that would have given them more negotiating power. At the time, Amazon was buying the most popular e-books for about $13, then selling them for $10 or less in order to gain market share. This frightened publishers, which predicted the company would eventually pressure them to lower their wholesale prices rather than raise its own price to consumers. In order to prevent this—and to slow the shift to e-books in the hopes that other competitors would enter the market—five of the six major publishers agreed with Apple on an “agency model” that would let them set retail prices and give Apple, or any other seller, a percentage. That would have encouraged competition in e-books—to the benefit of publishers, other technology companies, and, ultimately, consumers.

The plan backfired: The U.S. government filed an anti-trust case against Apple and the publishers for conspiring to restrain competition. (The five publishers settled the case; the court ruled against Apple, which has appealed.) But although the publishers may have violated the law, the case ended up helping Amazon dominate the book market. Potentially, at least, it also gives the company too much power over public discourse. So far, to its credit, Amazon has been willing to sell books critical of its behavior; if it stopped, how many publishers would be willing to invest in them? Essentially, the government destroyed competition in the book market in the name of trying to save it.

Why did an anti-trust case help give Amazon the kind of market power that anti-trust law is designed to prevent? The problem is that U.S. anti-trust law focuses on behavior that may raise prices for consumers—and while the publishers’ plan would have, Amazon’s strategy didn’t. At least in its current interpretation, U.S. anti-trust law doesn’t deal well with companies that sell items below cost, under the logic that such situations can’t continue forever: eventually, according to the legal logic, such companies will have to raise prices, which will create opportunities for competitors. That’s the theory, at least. In this case, once consumers have a Kindle, or even an Amazon Prime account that includes free delivery, they won’t want to switch bookstores. And if Amazon drives competitors out of business, it can put even more pressure on suppliers—which in turn would drive more competitors out of business.

Did the case against Apple and the publishers actually help consumers? It saved them money—which is important—but it’s foolish to think consumers have no long-term economic interest in a healthy publishing business that can invest in writers. Perhaps they’re conflicted. Only a few years ago, many Amazon customers expressed outrage at the prospect of paying more than $10 for an e-book. Now many seem upset that Amazon is pressuring publishers to get the kind of prices they said they wanted. For that matter, why has Hachette, a French media conglomerate, received more public sympathy than Amazon’s beleaguered warehouse employees?

Whether l’affaire Hachette amounts to anything more than the year’s most intensely covered supplier negotiation ultimately depends on what you think Amazon is selling. To people who love books, myself included, the company is distributing nothing less than free expression itself—which is why France and Germany have laws against book discounting to prevent big retailers from dominating the market. To Amazon books are just bundles, or bits, to be delivered as quickly and cheaply as possible. When the company finally commented on the Hachette dispute on May 27, it said that “the topic has generated a variety of coverage, presumably in part because the negotiation is with a book publisher instead of a supplier of a different type of product.” Which, like many public statements by giant technology companies, is both indisputably logical and a bit beside the point. Hardly anyone cares when Amazon imposes tough terms on other suppliers, or even its own warehouse workers. Then again, perhaps we should.